Four Must-Have Metrics for Marketing Measurement

Summary: Four critical metrics tell you most of what you need to show the value of your marketing efforts and to optimize your results. And, here's a funny picture.

There’s still time to sign up for my October 7 Webinar on stage-based marketing measurement (sponsored by Marketo and hosted by the American Marketing Association). During my extensive, um, research, I was very pleased to find the following picture to illustrate the concept of stages:


I like this picture both because it's amusing (a major priority) and also because it illustrates that stage definitions are constructed, not discovered. (I suppose the proper science is that evolutionary stages are objective facts, in which case our monkey friend in the photo simply has it wrong. But the deeper point still stands: whether it’s evolutionary stages or purchasing stages, someone imposes conceptual order on the jumble of reality.)*

If the picture isn't enough reason to attend, the Webinar will also present four essential metrics of stage-based marketing measurement. (Quick review: stage-based measurement tracks the ability of marketing programs to move leads through stages in the purchase process. This is more meaningful than attributing some fraction of the final revenue directly to each program. I’ll cover this in the Webinar and also discuss it in a recent whitepaper Winning the Marketing Measurement Marathon).

In case you can’t attend the Webinar, I thought I’d share the four metrics here.

1. Marketing ROI.
Purpose: to show the company’s return on its marketing investment.
Inputs: marketing costs and marketing-related revenue.
Metric: return on investment (= revenue / cost)
Comment: As with any ROI calculation, the trick here is to determine which costs are associated with which revenues. It’s always hard for marketers to know which revenues they helped to generate, but I’ll assume a database or digital environment that identifies the treatments applied to individuals and their actual purchases. In this situation, marketing ROI is calculated by summing all marketing costs for a cohort of customers sharing some common feature such as original source, acquisition date range or first purchase date. Note that a meaningful calculation must also include spending on people who never purchase, so a cohort based on purchase dates must somehow include non-buyers.

2. Program ROI
Purpose: measure the relative performance of individual marketing programs.
Inputs: incremental marketing cost, incremental revenue
Metric: incremental ROI
Comment: Obviously the key word here is “incremental”. Marketing programs exist in the context of other activities that influence buyer behavior. The only thing you can really measure is the incremental change that occurs when a particular program is added or removed from the mix. Combined with incremental costs, this gives an incremental ROI for the program. Spending more on high ROI programs and less on low ROI programs is how marketers optimize their results. Remember, though, that ROI is just one part of the equation. In practice, marketers must balance it against considerations such as revenue goals and marketing budgets.

Incremental measurement requires formal tests that compare performance of two similar groups which differ only in whether they received a particular program. These tests can cover any type of program, including nurture programs that don’t acquire new names. Proper measurement must track through the end of the buying cycle, since a program’s impact on early stages might vanish or even be reversed at later stages. One common example: a free introductory offer that yields higher initial response but doesn't add to the final number of paying customers.

3. Stage Results
Purpose: understand movement of leads through the buying stages
Inputs: marketing costs per stage, conversions (= number of leads that move to the next stage), conversion time (= time in stage before conversion to next stage; a.k.a. velocity), lead inventory (=number of leads in each stage)
Metrics: conversion rate, cost per conversion, average conversion time
Comment: These statistics describe how leads are moving from one stage to the next. The information is used to project future behaviors, to identify problem stages, to track changes in stage performance, and to compare the effects of marketing programs. Where leads in different cohorts (based on original source, acquisition date, marketing treatments, etc.) behave differently, statistics should be gathered separately for each cohort.

One statistic you can't calculate is the ROI for stage investments. This is counter-intuitive: stage ROI should be possible because you're making investments at each stage and the investments produce leads with higher values. But in fact the aggregate value of a cohort of leads remains the same as they move through the stages; all that happens is that unproductive (i.e., valueless) leads drop out. That is, even though the value per lead increases, there is no increase in the value of all leads combined. Without a value change, you can’t calculate a return on investment.

(Actually, there is a bit of value change as leads move through the stages because leads in later stages will need less additional investment to reach the final sale. But the expected revenue for the cohort stays constant. Of course, to the extent that a particular marketing program creates an incremental change in total value, this can be measured like any other program ROI.)

4. Revenue Forecast
Purpose: estimate future period revenues (by week, month, quarter, etc.) from the current lead inventory.
Inputs: lead inventory per stage, conversion rate per stage, conversion time per stage
Metric: revenue forecast by period
Comment: Revenue projections are among the most critical of corporate statistics. The stage-based approach allows more accurate projections of revenue over time, starting with the current lead inventory and known stage statistics. If the projections can distinguish marketing-generated leads from other leads, they can also give a concrete measure of the value that marketing has provided to the organization. If leads from different cohorts behave differently, the projections need to use separate assumptions for each group.

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* Platonists and creationists, with their respective theories of absolute Forms and divinely-created immutable species, might argue that species actually do have an independent existence. They're wrong.

Do Small Businesses Need Marketing Automation?

Summary: Vendors who target small businesses include provide functions beyond traditional marketing automation. This helps business owners who need to generate revenue as efficiently as possible. But larger firms need to be efficient too: so expect all marketing automation systems to eventually expand in similar ways.

The replies are rolling in from the survey of vendor features that I mentioned last week. (Reminder: you can upload the 150+ questions for your own RFP from www.raabguide.com.)

One interesting reaction has come from vendors serving the smallest companies (I’m talking really small here -- under 10 employees). These include Genoo, Hubspot, Infusionsoft and OfficeAutoPilot. A couple have noted that my questions only cover standard marketing automation functions (email, landing pages, nurture campaigns, lead scoring, CRM integration and reporting), while their products offer additional functions. The most common added function is sales force automation, but some also offer different combinations of e-commerce, order processing, customer support, blogging, Web site optimization and paid search.

On one level, this broader scope makes perfect sense. Small companies don’t have the money to pay for multiple systems and, probably more important, lack the technical resources to integrate them. In addition, most small firms have pretty basic needs, so even the “light” editions of full-featured products like Salesforce.com can be overkill.

But if small companies really want a single system, why hasn’t one grown to dominate the marketplace? Vendors like NetSuite do offer such products, but they’re not targeted at very small businesses. Rather, the most successful small business systems tend to do one thing: think accounting (Intuit Quickbooks), Web hosting (Godaddy), email services (Constant Contact) or CRM (Salesforce.com).

Some of these vendors have tried to poach on other territories, but without much success. I think that’s because there is relatively little interaction between the different systems. As a result, small businesses haven’t felt much pain from keeping them separate.

Marketing among very small businesses is often limited to a bit of local advertising and a Web site. Among those who use actual marketing systems, the most common are simple outbound email. More aggressive businesses might add auto-responders such as Aweber, with pricing as low as $19 per month for 500 subscribers. From there, it's a logical progression to the small business marketing automation vendors I mentioned earlier, although the big jump in prices poses a hurdle: costs start upwards of $200 per month.

The progression from outbound email to auto-responder to nurture campaigns and the rest of marketing automation makes perfect sense, corresponding to new marketing efforts as a business grows more sophisticated. But broader scope inevitably encroaches on other existing systems.

In the case of marketing automation, landing pages encroach on Web hosting and search engine optimization vendors while marketing databases encroach on CRM and social media management. As the elephants in those fields begin to notice flea bites from marketing automation systems, they’ll eventually consider extending their own systems in return. We’ve already seen this with Oracle’s purchase of Market2Lead (now apparently embedded in the Oracle OnDemand CRM system) and, depending on how you look at it, in IBM’s purchase of Unica. We’ve also seen various Web content management vendors (Marqui, SiteCore) add marketing functionality.

Generally speaking, nipping the ankles of elephants is more likely to get you crushed than make you rich. But the case may be different for marketing automation vendors. This will depend on showing that they’re replacing a cost center (e.g. Web hosting, customer service) with a revenue generator, or that their integrated approach yields more revenue than the current isolated systems (e.g. sales automation, search engine marketing, outbound email).

This means that the small business vendors who feel my survey is too narrow are right. Their buyers need more than traditional marketing automation features. I expect vendors in that space will continue to expand their scope accordingly, even as vendors in other spaces add marketing automation features for the same reason. And I expect this broader scope will eventually percolate upwards to larger companies, although this will happen more slowly because of organizational barriers to cooperation.

Webinar and White Paper on Marketing Measurement

Marketo yesterday released Winning the Marketing Measurement Marathon, a white paper that I wrote for them. This was timed to coincide release of their new Revenue Cycle Explorer, which adds advanced reporting to their Revenue Cycle Analytics line. (See my August 3 post for more details on Revenue Cycle Analytics.)

I'll also be speaking with Marketo in an October 7 Webinar hosted by American Marketing Association. Please join us.

150+ Questions for Your Marketing Automation RFP

Summary: I've posted a list of nearly 200 RFP questions that I hope many people will adopt to their own needs. If it's used widely, buyers and vendors both benefit.

Death, taxes and RFPs. For business software vendors, all three are equally inevitable – and it's not clear which they dislike most. In my on-going humble efforts to serve the industry, I’ve posted nearly 200 detailed questions that could serve as the backbone for many RFPs. The list is available in the Resources section at www.raabguide.com; it’s free once you register.

The thought here is that everyone would benefit if many buyers worked from a standard list. Vendors could prepare one set of answers and buyers would get faster and more reliable responses to a thorough set of questions.

I do have a minor ulterior motive in posting this list. Those of you familiar with the Raab Guide to Demand Generation Systems know it already contains very detailed information on major vendors (Aprimo, Eloqua, Genius.com, Manticore Technology, Marketbright, Marketo, Neolane and Silverpop). But preparing each entry takes a tremendous amount of work and, frankly, it’s hard to make sense of the results. So I’ve come up with a list of mostly yes/no questions that highlight key differences among vendors. This is much easier to prepare and probably easier for buyers to use. I’ve sent this list to two dozen vendors and will publish the results in a new report as soon as the replies come back. Posting the list will encourage the vendors to participate, since they can expect other people to ask the same questions.

Obviously I wouldn't have planned the new report if I didn't think it was worthwhile. Still, the approach has several drawbacks. Here's how I'm dealing with them.

- It relies on the vendors to answer accurately. Outright puffery aside, written questions are open to interpretation and you can bet the vendors will give themselves the benefit of any doubt. The best I could do was to make the questions as specific as possible. Here’s a typical example:

share assets across campaigns: marketing materials such as templates, emails, Web pages and forms, content blocks and links can be shared across campaigns. “Sharing” means the component is stored outside of a specific campaign in a central repository which is accessed during campaign development. The system may either create an independent copy of the item for each campaign, meaning changes to the local copy or the master do not affect each other, or it can establish a link between the campaign and the master copy, meaning any change to the master will be reflected in all campaigns using that item.

Hopefully this is precise enough that a “yes” actually means something. I’ve also described a couple of alternative ways of solving the problem, in the hope that this will encourage buyers to dig deeper on their own.

- The list is generic. Buyers have different needs. Each will care about only some of the questions on the list and about other questions I’ve left out. Of course, I can (and just did) warn buyers to select the items that matter to them. Beyond that, I’m creating separate weights for how important each answer is to small, medium and large marketing departments. That will let my final report include summary scores that help identify which vendors are best suited for each type of buyer.

Naturally, people will disagree with some of my weights. But that’s a healthy debate. In fact, prioritizing requirements is the most important discussion buyers can have when selecting a product. So bring it on.

- Not everything can be scored. Usability, vendor support and reliability are just some items that are hard to capture in yes/no questions. They also can change pretty rapidly. I can’t offer a solution other than to stress the importance of buyers doing their own research through demonstrations (based on their own scenarios), reference checking and conversations with other users.

In theory it should be possible for social media to provide a public forum for such issues. But I don’t see a way to do this without having self-interested parties distort the results. Suggestions, anyone?

* * *

Speaking of suggestions, I’m sure people will think of questions that should be added. I actually have a few myself. Changes will have to wait because the current set has already gone out to vendors. But if this concept generally works, we can expect future iterations of both the report and the master list. So there will be time for updates. If this really takes off, perhaps the list can be maintained in a communal form such as a Wiki. Raab Associates does not need to own this.

Indeed, a truly ideal solution would be for vendors to post their answers on their own Web sites. That would give buyers clear, consistent information without issuing a RFP at all. I’m not holding my breath for that one, however.

In any case, please download the list, use it as you see fit, and let me know what happens. As near as I can tell, everybody wins.

True Influence's LeadPAC Offers Pay-Per-Click Email. Think About It.

Summary: LeadPAC lets marketers pay for email responses as easily as they pay for search responses. It’s a major improvement over traditional lead generation.

I can’t recall a vendor with the same business model as LeadPAC from marketing automation vendor True Influence. That's pretty rare in itself, but what really matters is that LeadPAC's model offers some powerful benefits. That's worth some excitement.

So what, exactly, makes LeadPAC so special?

LeadPAC lets marketers order prospect lists based on segmentation criteria such as title, industry and company size. Nothing new there. The system will also send emails to those names without the marketer loading them into a separate system: a little harder to find but still far from unique. But here's the new part: users only pay for responses.

I’ve seen marketing agencies and direct response media that work on a cost-per-lead basis. But I’ve never seen it baked into the email engine of a marketing automation system. If you're aware of a similar product, please let me know.

Of course, the classic pay-per-click medium is paid search, and above all Google AdWords. It's no accident that LeadPAC resembles AdWords in both function and appearance. True Influence CEO Brian Giese said the goal with LeadPAC is to give marketers a way to create real leads quickly, using AdWords as a model.

Like AdWords, LeadPAC lets clients set a target cost per name and a weekly budget for their spending. Again like AdWords, the system keeps sending promotions – in this case, emails – until the budget is reached. The system further resembles AdWords in having some automated intelligence: in the case of LeadPAC, this means spacing the emails, limiting any name to one contact per week, and taking into account different response rates based on time of day and day of week. One thing it doesn't do – yet – is build predictive models to select the most responsive names within the specified universe. Nor is pricing based on AdWords-style bidding: clients pay a fixed fee ranging from $10 to $30 per name depending on the level (senior executives cost more than department managers). Just to be clear, that's all they pay: there's no fee for the marketing automation system itself.

Setting up a campaign in LeadPAC involves three basic steps.

- Select the audience by choosing from personal and company attributes including title, department, level, location, company size and ownership. The prospects come through LeadPAC’s partnerships with major consumer and business list vendors.

- Define the email to send, starting either with vendor-provided templates or by uploading a client's own template. LeadPAC provides a typical editor and standard features such as previewing the email and sending test messages.

- Define the campaign start date and weekly spending limit. Once clients submit their campaign, LeadPAC reviews it for content, reasonableness and compliance with anti-spam regulations.

Clients receive lists of responders on a regular basis. They can load these into any marketing automation system or True Influence's own marketing automation product, which lets them run multi-step nurture campaigns, apply lead scores, and synchronize data with Salesforce.com.

The beauty of all this, as with AdWords, is simplicity. Clients still need to specify their audience and create their email offer. But the cost-per-response model saves them the effort of managing details such as importing and refreshing lists, spacing their mailings over time, and tracking which segments respond best. This takes usability beyond the interface, by actually eliminating tasks rather than just making them easier to do. It makes email lead generation possible for companies that lack even basic skills in managing such programs.

Indeed, clients paying only for responses have little incentive to optimize their list selections or their copy. The vendor alone bears the cost of low response rates. This is probably part of the reason that True Influence reviews the campaigns for reasonableness.

Interestingly, one cure for this problem is to have clients do even less. If TrueInfluence deployed automated response modeling, it could avoid having anyone define target segments and still improve its response rates. Add some automated copy testing and marketers would be about as close to push-button lead generation as I can imagine.

Of course, email is just one part of lead generation and an even smaller part of full-scale marketing automation. So marketers will have plenty of work whether or not they use LeadPAC. But as an example of ways to really make marketing easier, LeadPAC is food for thought.

Hard Data to Justify Your Marketing Automation Investment

Summary: So you want some hard numbers to prove the value of marketing automation? Here's a bunch.

A client asked yesterday if I had some benchmark information to justify the cost of her marketing automation project. This set off an hour-long scavenger hunt through my hard drive, followed by sporadic afterthoughts later in the day. Since this is a question that comes up pretty often, I figured I’d share some of the more useful results. If anyone else cares to expand on this list, even better.

1. Neolane “Making the Business Case for Enterprise Marketing Software”. This paper contains step-by-step instructions for building a business case and even a link to a slide deck you can use as a template. It includes five pages of properly sourced industry statistics from Aberdeen, Forrester, Gartner and SiriusDecisions. Some of the more helpful tidbits:

• 10% or greater revenue increase within six to nine months In 2009 for companies that automate lead management processes (Gartner, “The Top Six CRM Marketing Processes for a Cost-Constrained Economy,” 2008)

• 15% reduction in five-year total cost of ownership for companies that integrate inbound and outbound marketing (Gartner, “Cost Optimization in Multichannel Campaign Management,” 2009)

• 25% or greater improvement in Waterfall Conversion Rates for companies with best-in-class processes vs. companies with average processes (SiriusDecisions, "Field Marketing 2.0: The Heart of Growing Conversion Rates," 2008)

	Best in Class	Average	% higher
Inquires to Marketing Qualified Leads (MQLs)	nearly 10%	3.9%	150%
MQLs to Sales Accepted Leads (SALs)	nearly 75%	58%	29%
SALs to Sales Qualified Leads (SQLs)	nearly 61%	49%	24%
SQLs to Closed Business	31%	23%	35%

Incidentally, SiriusDecisions reported newer but very similar figures in the recent Neolane-sponsored Webinar 'Making the Business Case for Marketing Automation'.

2. Eloqua “The Business Case for Integrated Demand Generation” offers data from Forrester, CSO Insights and several Eloqua clients. The data is a couple of years old but still valid. Statistics include:

• 16.5% higher campaign response rates and conversion rates

• 50% decrease in time to execute campaigns

• 100% increase in number of campaigns

• 85% decrease in cost per lead

• 18% higher revenue

• 9.3% higher sales quota achievement and 7% higher win rates

• 100% increase in deal size

3. Aberdeen Group has published many studies related to marketing automation. These follow a standard format: use performance to classify companies as best-in-class (top 20%), average (mid 50%) and laggard (bottom 30%) companies, and then look at differences the business processes and technology. This makes sense if you want to profile top-performing companies, but it also means Aberdeen never directly compares results of companies that use a particular type of system to companies that don’t. That makes it a bit harder to use Aberdeen data to justify a marketing automation investment. But lots of people do anyway.

Aberdeen Group, “Lead Lifecycle Management,” July 2009

	Best in Class	Average	% higher
Return on Marketing Investment	75%	45%	67%
Lead to Sales Conversion Rate	8%	3%	167%
Average Increase in Response Rate	12%	7%	71%

Aberdeen Group, “Crossing the Chasm with Automated Lead Management”, January 2010

	Best in Class	Average	% higher
Average Revenue Growth	59%	9%	556%
Average Email Clickthrough Increase	23%	6%	283%
Average Lead to Sales Conversion Improvement	23%	13%	77%

Aberdeen Group, “Sales Intelligence: Preparing for Smarter Selling”, February 2010

	Best in Class	Average	% higher
Win/Loss Rate	34%	26%	31%
Lead Conversion Rate	27%	21%	29%
% Reps Achieve Annual Quota	52%	44%	18%

Aberdeen Group, “The Convergence of Sales and Marketing Technologies”, December 2007
(These figures differ a bit from the other Aberdeen data. First, they compare Best-in-Class to all other companies, rather than Average performers. Second, they also report improvements that respondents specifically said were “a result of integration between marketing technologies and CRM”.)

	Best in Class	Non-Best-In-Class	% higher
Bid-to-Win Ratio Increase	24%	18%	33%
Lead Conversion Rate increase	23%	16%	44%
Average Revenue per Account increase	15%	12%	25%
Average Deal Time decrease	13%	10%	30%
Average return on marketing campaigns inrease	27%	13%	108%

4. CSO Insights publishes highly regarded studies of sales performance. I don’t have their most current data available but figures from earlier years are widely cited.

CSO Insights, “Optimizing Lead Generation: What’s the Payback,” 2006

	Best in Class	Average	% higher
% reps making quota	66.1%	56.8%	16%
% firms w/lead to first call conversion > 50%	48.7%	32.2%	51%
win rates	55.6%	48.6%	14%
% firms w/ramp-up time for new sales people of 7 months or more	49%	65%	-25%

5. Two final tidbits on the every popular question, What’s lead nurturing worth?

Marketo, in its Webinar Secret Sauce for Demand Generation, generously revealed its own results comparing nurtured vs. non-nurtured leads. The key finding here is that nurturing tripled the number of “slow” leads (taking longer than one month) that eventually reached Marketing Qualified status:

	with nurturing	without nurturing	% higher
Fast Leads (MQL<1>	20%	20%	0
Slow Leads (MQL>1 mo)	20%	6.67%	200%

Market2Lead (before they were absorbed by Oracle) told me they had analyzed their own customers' data and found:

• 9% higher average deal size for nurtured leads vs. non-nurtured leads

• 23% shorter deal time for nurtured than non-nurtured leads.